Against the Grain

There seems to be an East / West split in market sentiment, in Asia talk of China planning to tighten bank capital requirements with the China Banking Regulatory Commission reported to have drafted rule changes. This has dented equity markets in the emerging sector and seen metals this week lag behind gains in oil. The freight markets have been in retreat as worries mount about decreased Chinese imports of bulk commodities. The West continues to see better economic numbers and rising equities.

Since the Shanghai equities peaked in early Aug we have seen a marked increase in Shanghai weekly metals stocks which continued this week cu rose 5543 tonnes to 81,650; al up 16,995 tonnes to 198, 363 and zn dipped 250 tonnes at 115,461. Asian metal trading was subdued partly because Select was down for a while and Europe began slowly before getting a lift from a weaker US$, rising oil and encouraging economic data. The LME stocks rose across the board on the week with marked difference in tonnage - cu 250 tonnes on the week; al jumped 75 kt; zn 875 tonnes; pb 2.4 kt; ni 1.5 kt and sn 368 tonnes. A new term entered the metals lexicon today, the BHPBilliton CEO introduced “clean demand”, in a briefing he said “we wont see clean demand until early next year, stocking events will probably play the major role for probably the next six months”.

In Europe preliminary Aug PMI figures showed continued recovery, Euroland manufacturing was estimated to be at 47.9 (Jul 46.3), services 49.5 (45.7) and the composite reading 50.0 (47.0) on the cusp of contraction and expansion. The two leading economies saw German manufacturing at 49.0 (45.7) and services at 54.0 (48.1) while France manufacturing was 50.2 (48.1) and services 48.9 (45.5), is France overtaking Germany as the powerhouse of European manufacturing? The manufacturing PMI data is certainly running ahead of actual industrial production numbers. In the UK Jul car production fell 17.9% yoy as the focus turns to what the government will do going forward with is car incentive scheme. In Russia 1H foreign direct invest collapsed by 45% yoy. While the  accident at the Sayano – Shushenskaya hydro electricity dam in Siberia which provides 15% of the country’s hydro electricity and 2% of its total power highlights the investment that is needed in Soviet era infrastructure.

Data for the week ended at 15:00 with US Jul existing home sale jumped 7.2% to 5.24million units better than expected (Jne +3.6% at 4.89 million). The rise was perhaps backed by all the wrong reasons, foreclosure-driven decline in prices, government credits for first-time buyers and near-record-low borrowing costs. After a blip last week “never be short on a Fri afternoon” was again the mantra. The “cash for clunkers” car scheme is being ended Aug 24 with nearly 500,000 cars being exchange as consumers turn from trucks and SUV’s to smaller cars with greater fuel efficiency. A full blown commodities charge was tainted by a strengthening US$. See the take on the US economy by Simon Johnson ex economist at the IMF in the NYT Aug 20 (www.nytimes.com).

On the week the honours go black gold, cu rose 40, al up 27, zn increased 52, pb a rise of 42, ni down 375, sn off 425, gold up US$ 8 / oz, oil jumped US$ 6 / bbl, DJI at time of writing up 139 points and US bond yields rose 0.03 %.